Debt itself didn’t cause the offshore driller bankruptcy cycle of 2016-2021. Debt + a newbuild wave delivering into a downturn did, and it was bad for years Today, a non-existent orderbook is a better macro backdrop to support modest levels of debt in an optimal cap structure - Ten years ago, it was hard not to be a huge bear on deepwater rigs. Not only did OPEC crash the market in Nov 2014, but a bloated newbuild orderbook took years of deliveries and supply rationalization to absorb. Meanwhile, E&Ps and IOCs favored short-cycle shale capex, and the Permian was about to add a few million bpd at lower costs than deepwater could match. It resulted in a wave of bankruptcies of deepwater drillers from 2016-2021, although Transocean and Odfjell never filed. Today, deepwater barrels are far more cost-competitive, thanks to eliminated redundancies and simplified, standardized project designs. Additionally, as more FPSOs come online, deepwater capex increasingly shifts to lower-cost brownfield tiebacks that leverage existing infrastructure. There's also no newbuild orders even contemplated. - The proposed Transocean-Valaris merger has been cleared by all global regulatory bodies. A shareholder vote in November remains but should be a formality. Once the deal closes, the Transocean debate shifts from merger risk to shareholder returns and the combined company’s optimal capital structure. - I believe Norwegian harsh environment semisub driller, Odfjell Drilling, sets an ideal example of balancing shareholder returns with an appropriate amount of leverage, which is currently ~1.6x net leverage and a >8% dividend yield. Once overleveraged, Odfjell deleveraged, then initiated a dividend with room to grow, and its stock has performed strongly in recent years. Transocean is unlikely to initiate a dividend at Odfjell’s current level of >8%, but Odfjell serves as a blueprint for a prospective shareholder returns program. - Transocean also has an NCS-eligible harsh environment fleet (currently 100% utilized), as well as an industry-leading drillship fleet and after combining with Valaris will also have a diversifying jackup fleet for shallow water markets. Given the combined Transocean-Valaris scale, fleet and regional diversification, and a stronger industry backdrop, Transocean should be able to comfortably sustain 1.5x-2.0x leverage while rewarding shareholders. In my view, a mix of dividends, buybacks, and flexibility for single-rig acquisitions (if/when more accretive than repurchases at prevailing valuations) would create option value for the company and its shareholders. - Borr Drilling is a different credit story. As a pure-play shallow-water jackup driller, it currently carries more leverage and greater exposure to the Middle East, where the Hormuz crisis is pressuring utilization and global jackup dayrates. The high yield credit market is saying Borr is overleveraged. Borr’s secured bonds trade actively in the high yield market, with the 8 ¾% 2032s and 9% 2034s both around 89-90, mid-600s OAS, and ~11.5% yields. Borr is rated B/B3, but despite adequate liquidity, sustained net leverage near 6x will lead the agencies to question the capital structure’s sustainability and potentially downgrade it to CCC/Caa. Current bond pricing already reflects that risk. - The bear case is for Borr to reach ~2x leverage ($1,080mm EBITDA level) requires ~90% utilization at ~$180k dayrates. These levels arguably reflect the 2022-2023 market driven by Aramco’s capacity expansion. Absent a similar Middle East demand surge, those levels may not return. Borr currently generates ~$385mm LTM, reflecting softer conditions. The bull case is that Middle East demand is depressed because of the Hormuz crisis and if/whenever that normalizes, the region should rebound, lifting jackup utilization and dayrates, all else equal. -A modest recovery in EBITDA should reduce leverage from ~6x to ~4x, although this is still an elevated level for an offshore driller. Achieving $1,080mm EBITDA (2x leverage) likely requires Aramco to come back in a large way, which is speculative. With yields above 11%, I believe the secured bonds are attractive given Borr’s modern fleet. For risk-seekers, the same leverage amplifies equity upside in a jackup rebound, and Borr has the liquidity to wait for one. The same leverage also magnifies downside in a dilution event.